Benchmarks: Delegated Acts on ESG Disclosures Published and Transitional Period for Third Country Benchmarks Extended

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[co-author: Anna Lewis-Martinez]

Three delegated acts that supplement the EU Benchmarks Regulation will come into force on 23 December 2020.

The long-awaited delegated acts (Delegated Acts) required by Regulation (EU) 2019/2089 (the Low Carbon Benchmarks Regulation), which amends the EU Benchmarks Regulation (BMR), have been published in the Official Journal of the European Union (OJ). The Delegated Acts will enter into force on 23 December 2020, 20 days after their publication on 3 December 2020. No substantial changes have been made to the official texts since the Commission adopted the Delegated Acts on 17 July 2020.

The Delegated Acts set out (i) sustainability criteria in order for a benchmark to qualify as an EU Climate Transition Benchmark or EU Paris-aligned Benchmark, and (ii) the environmental, social, and governance (ESG) disclosure requirements for benchmarks provided in accordance with the BMR.

The published texts of the Delegated Acts can be found at the following links:

The implementation deadline for the Delegated Acts in relation to the methodology and benchmark statement disclosures was 30 April 2020. However, ESMA issued a No Action Letter to National Competent Authorities (NCAs) on 29 April 2020 stating that NCAs should not prioritise supervisory or enforcement action against administrators regarding these new requirements until the Delegated Acts applied. (For more information, see Latham’s Client Alert European Commission Publishes Draft Delegated Regulations on ESG Disclosures in Benchmarks.)

Since the Delegated Acts will enter into force before the Brexit transition period ends, the Delegated Acts will become EU retained law and continue to apply to UK benchmark administrators post-Brexit.

European Parliament and Council agree to extend the transitional period for third country benchmarks

On 30 November 2020, the European Parliament and Council reached an agreement on the Commission’s proposed Regulation amending the BMR as regards the exemption of certain third country foreign exchange benchmarks and the designation of replacement benchmarks for certain benchmarks in cessation. Pursuant to the agreed amendments, EU market participants will be able to use benchmarks administered in a country outside the EU until the end of 2023. The Commission will be empowered to adopt a delegated act by 15 June 2023 to prolong this extension by a maximum of two years until 31 December 2025, but “such an extension will have to be duly motivated”. The Commission will also prepare a report on its legislative review by 15 June 2023.

This extension to the transitional period for third country benchmarks gives most global benchmarks administrators the ability to send ESG indices into the EU without complying with the Low Carbon Benchmarks Regulation until the extension date. The extension mirrors, to a certain extent, the UK government’s proposed extension to the transitional period for third country benchmarks from 31 December 2022 to 31 December 2025.

In addition, the amendments grant the Commission power to replace:

  • Critical benchmarks, which influence financial instruments and contracts with an average value of at least €500 billion and could therefore affect the stability of financial markets across Europe
  • Benchmarks with no, or very few, appropriate substitutes whose cessation would have a significant and adverse impact on market stability
  • Third country benchmarks whose cessation would significantly disrupt the functioning of financial markets or pose a systemic risk for the financial system in the EU

The EU believes that these provisions will help to ensure EU financial market stability in the transition away from LIBOR.

The agreement must now be approved by the Economic and Monetary Affairs Committee (ECON) and the European Parliament, with the official text expected to be published before the end of 2020.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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